Active Interest Rates and Monetary Policy: An Analysis with Individual Banks Data

Abstract

This paper investigates empirically the interest rate channel of the transmission mechanism of the monetary policy in Peru. Using monthly data for the six largest banks for the period June 2003 – June 2010 we study the two main policy instruments used under the inflation-target regime: the rate of monetary policy and the required bank reserves rate. We fit a dynamic panel data model obtaining two fundamental results. First, increases in the rate of monetary policy affect
positively and significantly the interest rates on commercial loans charged by the six largest banks of the country. Second, no evidence is found that the required bank reserves rate on deposits in Peruvian currency